Report outlines overall negative effects of San Jose's Measure D

By Tracy Seipel tseipel@mercurynews.com

Posted:
10/08/2012 06:39:15 PM PDT

Updated:
10/08/2012 08:31:49 PM PDT

SAN JOSE -- The city's economy -- particularly smaller businesses -- would be hurt if voters pass Measure D, which would raise the city's minimum wage from the statewide minimum of $8 an hour to $10 an hour with automatic future increases for inflation, according to a report released Monday afternoon by the San Jose Silicon Valley Chamber of Commerce.

The $10,000 study, created for the California Restaurant Association by Beacon Economics, analyzed the potential impacts to the city in terms of job losses, rising costs to businesses and increased spending by minimum wage workers in the economy.

Overall, the firm's economists, Christopher Thornberg and Jordan Levine, found that if implemented, a 25 percent wage hike proposed in Measure D on the Nov. 6 ballot would create a negative net economic benefit to the city of San Jose, because:

It would lead San Jose employers to cut 900 to 3,100 jobs.

It would cost San Jose employers between $87.7 million and $96.3 million annually -- not only in added wage hike costs, but also for added employee benefits linked to the pay raise.

While some of the increased costs would be offset by increased spending by minimum wage workers in San Jose who also live in the city, the economists cite figures that most do not live in San Jose, and would spend that income elsewhere.

Advertisement

The chamber's big worry is the harm the measure could have on small- and medium-size businesses, "the backbone of our community," chamber president and CEO Matt Mahood said before about two dozen people gathered Monday afternoon at the chamber's downtown headquarters where the report was discussed.

Moreover, Mahood said, if Measure D passes, it would make San Jose businesses less competitive with others located in bordering cities who pay their employees less. The chamber has been adamantly opposed to the measure.

But representatives from the South Bay Labor Council, as well as some nonprofits such as United Way of Silicon Valley and Catholic Charities of Santa Clara County who support the minimum wage increase, on Monday said the chamber is using sloppy data and scare tactics to sway voters.

Bob Brownstein, policy director of Working Partnerships USA, said the study's prediction that a wage hike would lead to thousands of jobs lost "runs counter to the best peer reviewed research by university economists conducted over decades throughout the United States."

Specifically, he said, the report fails to calculate the possibility that raising wages leads to reduced dependency on government programs, which would benefit taxpayers. And, he said, the assertion that some workers would spend their added income elsewhere doesn't take into account that San Jose is part of a regional economy.

"A large number of people who live in San Jose but work outside of San Jose still benefit from a prosperous regional economy," he said.

Moreover, he questions how many of the 24,000 minimum wage earners are actually employed by "small business," particularly the number of restaurant, hotel and retail workers who make up that majority.

"McDonald's is not a small business, the Hyatt is not a small business, and Wal-Mart is not a small business," he scoffed.

Thornberg, a former senior economist with the UCLA Anderson Forecast and former chief economic adviser to state Controller John Chiang, said his study is based on academic work in economics, most of which he said shows a net negative effect from raising the minimum wage.

"We came at this as neutral as possible," he said, citing both positive and negative effects that Measure D would have if implemented.

For example, the study said the measure also would lead to a ripple effect of additional annual spending by those workers of between $38.2 million and $42 million throughout San Jose and the region, as well as a gain of 302 and 332 jobs in San Jose. But after adjusting the increased spending by the increased cost to employers, Beacon concludes there would be an annual net negative economic impact of between $49.5 million and $54.4 million in the city as a result.

"You look at San Jose, one of the most powerful economies in the state -- in the world," Thornberg said, citing one million workers in Santa Clara County. "Will it (Measure D) kill the city of San Jose? Of course, not. The high-powered businesses don't pay minimum wage."

But, he said, the small businesses, the restaurants, the Mom-and-Pop stores, "these will be excessively impacted" should the measure pass.

Contact Tracy Seipel at 408 275-0140.

BY THE NUMBERS
Here's a partial breakdown of the estimated 24,000 workers in San Jose who earn $8 an hour expected to be most impacted by Measure D, which if passed would bump their pay to $10 an hour:
7,100: hotel and restaurant workers
4,100: retail workers
2,600: administrative support
2,200: health care workers
1,600: government workers
1,500: manufacturing workers
Source: Beacon Economics